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Contact: Rali Mileva    
               
(703) 739-0800
               
rmileva@abiworld.org

Consumer Bankruptcy Filings Expected to Increase

May 18, 2005, Alexandria, Va. The bankruptcy filing rate, which declined last year for the first time since 2000, will turn up again in the first quarter of 2005, based on trends in consumer debt levels and credit card default rates, according to the American Bankruptcy Institute. Three variables published by the Federal Reserve: the financial obligations ratio, the credit card default rate, and the credit card charge-off rate*, appear to correlate with, and lead, the consumer bankruptcy filing rate. Credit card delinquencies and chargeoffs increased slightly in the fourth quarter of 2004. This, together with concerns over the new bankruptcy law, which makes it more difficult for consumers to file chapter 7 bankruptcies, will lead to a bankruptcy spike in the first quarter of 2005.

While credit card delinquencies and chargeoffs suggest an upward trend when data is reported for the first quarter of 2005, a decrease in the financial obligations ratio in the fourth quarter suggests that filings may decrease in the second quarter of 2005. However, an increase in chapter 7 filings is expected in anticipation of October 17, the effective date of the new bankruptcy law.

“The key economic indicators were already pointing toward an uptick in bankruptcy filings,” said Samuel J. Gerdano, Executive Director of the American Bankruptcy Institute, “but the coming new law will clearly provoke a race to the courthouse of those in financial trouble.”

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ABI is the largest multi-disciplinary, non-partisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes over 10,700 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals providing a forum for the exchange of ideas and information. For additional information on ABI, visit ABI World. For additional conference information, visit http://www.abiworld.org/conferences.html.

*Definitions from www.federalreserve.gov

The Financial Obligations Ratio is a measure of a family’s debt burden.   It divides a family’s housing expenses (rent or mortgage, real estate taxes and insurance), automobile expenses (monthly loan or lease payments) and consumer debt payment obligations by that family’s after tax income.   The Credit Card Delinquency Rate measures the percentage of credit card debt outstanding that is more than 30 days past due, and the Credit Card Charge-off Rate measures the percentage of credit card debt that is more than 120 days past due. 

 

 


 

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